The acting inspector general of taxation has rebuked widely reported allegations the ATO used garnishee notices to engage in a small-business cash grab, broadly clearing the regulator of structural wrongdoing.

Unveiling the findings from a review into allegations made by ABC’s Four Corners program last April, acting IGTO Andrew McLoughlin said his investigation only identified localised problems in Adelaide.

“The allegations that there was an ATO direction for a ‘cash grab’ on small business or that debt staff personal performance were set on amounts collected are not sustained,” McLoughlin said in a statement circulated on Wednesday.

However, the IGTO’s investigation has revealed extraordinary details about the conduct of one team leader in an Adelaide ATO office, finding they encouraged front-line staff to issue five garnishee notices within an hour “ironically”.

The so-called “hour of power” was detailed in the original Four Corners report, courtesy of whistleblower Richard Boyle, who now faces the possibility of a hefty prison sentence for coming forward.

“The last hour of power is upon us… That means you still have time to issue another 5 garnishees…. Right?,” an email leaked to Four Corners reads.

The team leader subsequently claimed they didn’t intend the email to be taken literally, but rather in an “ironic sense”.

The IGTO concluded in her favour, finding available “facts and evidence” show the email could not have been taken literally.

“It would take a local Adelaide EI unit staff member, on average, 25 hours of scheduled work to issue five such notices,” the IGTO said.

“With the benefit of hindsight, given the manner in which this style of communication had been misconstrued, it may have been better to express that message differently.”

The finding that the now infamous email was “ironic” suggests the team leader was directing staff to do the opposite: not issue garnishee notices.

However, while the email was sent to only 12 of 200 staff conducting enduring garnishee work, the Adelaide office was told there was a “focus on issuing [enduring garnishee notices] where appropriate”.

In June 2017, the ATO’s Adelaide debt enforcement unit recorded an increase in both the number of garnishees issued and the proportion of enduring garnishee notices issued.

The activity began to raise eyebrows within the organisation by August 2017, with an email to managers in Adelaide raising concern with staff conduct.

“My perception (rightly or wrongly) is that staff may be choosing to issue an enduring garnishee to a [financial institution] as it forces the client to call in order to have the garnishee withdrawn,” the email to managers in Adelaide said.

“While it may prompt engagement, this action severely impacts the client’s ability to maintain the viability of their business or provide for their family (which is our overarching garnishee principles).”

The ATO staff nationwide staff issued enduring garnishee notices in just 8% of cases allocated to them in 2016-17, an average rate of one notice every five hours.

A total 23,712 garnishee notices were issued in the 2016-17 financial year, 40% less than was forecast by the tax office.

“These figures provide a strong basis for concluding the ATO’s early intervention debt staff, in the main, took care to consider the appropriateness of issuing garnishee notices in light of the taxpayer’s circumstances and took their responsibility to consider the next best action policy seriously,” the IGTO said.

“This is not to say that all staff on all occasions have exercised that power proportionately.”

McLoughlin said a “relatively small group” of business owners were disaffected by garnishee notices, all of whom received support from the IGTO.

More broadly, the findings challenge claims the ATO engaged in any structural or broad-based targeting of small businesses in 2016-17, recommending four changes which have already been accepted by the tax office.

Australian small business and family enterprise ombudsman Kate Carnell said she is concerned with the number of garnishee notices issued by the ATO.

“As the report states, inappropriate use of garnishee notices can severely affect a small business’s cashflow. It is a very serious matter,” she said in a statement circulated on Thursday.

“Given the draconian nature of the notices and the lack of judicial or other external oversight of notices before release, they should be used only as a last resort … if at all.”

Nevertheless, Carnell said she was pleased the IGTO did not uncover evidence of a concerted cash grab or a link between debt staff performance and garnishee notices.

The IGTO has advised the creation of contingency plans to improve the way the tax office estimates staffing resources needed for collection activities.

It has also recommended an improvement in the automated processes that select garnishee cases for review and that the ATO improve support for early intervention debt staff.

The IGTO’s review was narrow in scope, focusing specifically on whether there was an insider issue at the ATO resulting in small businesses being unfairly targeted rather than broader issues.

ATO offices in Melbourne, Penrith, Parramatta and Adelaide were visited in the IGTO investigation, which involved over 50 interviews with ATO staff and accessed internal systems, information and records.

ATO commissioner Chris Jordan welcomed the IGTO report in a statement circulated on Wednesday, saying it has been made “crystal clear” there were no revenue targets for debt staff and no cash grab.

“These findings are in stark contrast to the picture painted by ABC’s Four Corners program in April 2018, which would have its viewers believe that our staff were rushing to issue garnishee notices without proper thought or process to meet a target,” Jordan said.

“I welcome and accept all of the Inspector-General’s recommendations in relation to our internal communication, training procedures and contingency planning.”

“Fine tuning”

Tony Greco, general manager of technical policy and public affairs for the Institute of Public Accountants, described the recommendations as “fine tuning”.

“Garnishee notices are quite debilitating, they should only be used as the last point of call when a client is going to abscond with the funds,” Greco tells SmartCompany.

“There are some instances where the wrong thing did happen, and we’re told their minor and the wheels haven’t fallen off.

“Processes will always go wrong, the best you can hope for is the instances of those numbers are small and there’s remedial action that comes into play quite quickly.”

While the IGTO report pours water on some of the bigger claims made about ATO conduct and culture, small businesses have scored several wins in the 11 months since the Four Corners report was aired.

The government has committed to new dispute resolution channels, including an AAT small business desk overseen by the small business ombudsman.

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